Politics at Home and Abroad Affects Turkish Firms

Sep. 29, 2013 - 11:29AM
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ANKARA — Political turmoil domestically and internationally is increasingly affecting the fortunes of Turkish defense companies — some for ill, some for good.

Politics has always been a part of the Turkish procurement process, but now plays a greater role in decision-making, according to a London-based Turkey specialist who spoke on condition of anonymity.

“In the past the Turks boycotted/blacklisted contenders from this or that country based on their foreign policy considerations,” the specialist said. “What's new today is that they are doing this much more aggressively and they can now discriminate against or in favor of local companies, too.”

Recently, Turkey’s procurement authorities, under orders from Prime Minister Recep Tayyip Erdogan, decided to revise a $2.5 billion contract for the production of six corvettes. In January, the government opened contract negotiations with RMK Marine to produce the warships under Turkey’s first national warship program, Milgem. Istanbul-based RMK is owned by Turkey’s biggest industrial conglomerate Koc Holding. But before taking effect, the deal has come under scrutiny by the prime minister’s auditing board, which said the competition process was faulty, according to to procurement officials, and a final decision would be made by the Defense Industry Executive Committee, which is chaired by Erdogan.

In July Defense News reported that Koc’s defense business could be a casualty of a row that developed between the prime minister and one of its top executives during the protests that battered the Turkish government in June.

In one incident, protesters tried to escape police tear gas and pepper spray by taking refuge in a posh Istanbul hotel, Divan, owned by Koc. Hotel management admitted the protesters to its lobby, which quickly turned into a makeshift first aid room. The police fired more teargas and pepper spray into the hotel lobby. It was reported that Ali Koc, a board member and third-generation family member, had ordered the hotel to help the protesters.

On June 16, an angry Erdogan said at a public rally: “We know which hotel owners helped terrorists [protesters]. It is a crime to abet terrorists. And those crimes will not remain unpunished.”

On the international scene, Turkish companies vying to sell equipment to Egypt have been the victims of a major diplomatic row between the largest Arab country and Turkey. Erdogan has been a fierce supporter of Egypt's first elected president, the Islamist Mohamed Morsi, and relations between Ankara and Cairo have been frozen since after Morsi's July 3 ousting by the Egyptian army.

Only six weeks before the coup, Turkey granted Egypt a $250 million loan to finance Turkish-Egyptian joint defense projects. The loan, the first of its kind, intended to boost defense cooperation and Turkish exports of defense equipment.

Earlier, Egypt expressed an interest in buying the new Anka medium-altitude, long-endurance unmanned aerial vehicles built by Turkish Aerospace Industries. The potential sale of six to 10 Anka systems to Egypt was discussed during Erdogan's visit to Cairo in November. The Anka is currently undergoing flight tests.

Before that, Ankara had approved the sale to Egypt of six multi-role tactical-platform MRTP-20 “fast-intervention crafts” produced by the privately owned shipyards Yonca-Onuk. Under this deal, three boats would be constructed in Istanbul and the others in Egypt’s Alexandria shipyard under Turkish license.

Latif Aral Alis, chairman of Turkey's Defense and Aerospace Industry Exporters Association, said Aug. 23 that Turkish defense and aerospace exports to Egypt have ceased after the coup.

All of this upheaval could also make other nations concerned about doing business in Turkey. “The wise company or foreign country with defense business interests in Turkey should avoid any potential conflict with the Turkish government’s political ambitions. This has become the new norm in the trade,” said one senior country representative for a Western manufacturer. “We are worried.”

But some Turkish companies stand to gain from the recent turmoil. Bloomberg quoted Mehmet Katmerci, CEO of Katmerciler, as saying that images broadcast worldwide of Turkish protesters fleeing the company's TOMA anti-riot water-cannon trucks might help generate business for the Izmir-based company in nations facing social unrest, such as Brazil and Libya.

The government ordered 30 TOMAs in May and it plans to buy 43 more. Katmerciler's founder, Ismail Katmerci, is a former lawmaker in Erdogan's ruling Justice and Development Party.

Industry sources say Katmerciler will sell 60 protest dispersion vehicles this year, up from 10 in 2012. About 90 percent of the Katmerciler vehicles are exported to 41 countries, according to the company’s 2012 annual report. Key markets include Iraq, Azerbaijan and Nigeria. Syria, which accounted for about 20 percent of exports before the war, is no longer buying.